Please read an article – generally, the article should be about three pages in l

Question

Please read an article – generally, the article should be about three pages in length in order for you to get a lot of information to write about - or a few articles that relate to a Macroeconomic topic. Possible subjects include inflation, unemployment, economic growth, interest rates and most anything related to banking, government spending, government taxing, (at all levels: state, local, and federal) and so forth.

Provide a summary of the article/articles. The summary should take about 1 typed page. Please include the source and date of the article/articles. Please attach a copy of the article to your paper electronically.

Give your response to the article. In other words, tell me what implications the article has for people in their personal and professional lives. This will probably take about 2 pages.

Explanation / Answer

For economy to stabilize monetary and fiscal policymakers should take an active role in leading the economy to stability. When aggregate demand is inadequate to ensure full employment, policymakers should try to boost spending in the economy. When aggregate demand is excessive and there is a risk of inflation, policymakers should try to lower spending. Such policy actions put macroeconomic theory to its best use by leading to a more stable economy. Opponents argue that there are substantial difficulties associated with running fiscal and monetary policies. One of the most important problems is the time lag that often occurs with policy. Economic conditions change over time. Thus, policy effects that occur with a lag may hit the economy at the wrong time, leading to a more unstable economy. Therefore, policymakers should refrain from intervening in order to avoid doing any harm to the economy.

Finally, macroeconomists have long debated whether the government should balance its budget or run a deficit. Balanced budget's advocates argue that future generations of taxpayers will be burdened by public debt if the government accumulates annual deficits in the present. Opponents of the balanced budget approach argue that the problems caused by government debt are overstated and that the future generation’s burden of debt is relatively small when compared with their lifetime incomes. If public spending on education and health is reduced, for example, this could lead to lower economic growth in the future, which would certainly not make future generations better off.

According to some articles related to FED, prices are rising, but consumer expectations for higher inflation are also moving up which is a bad sign for the Fed. With this two things can happen: Either economic slack will bring inflation down, or the financial system will recover quickly.

Most Fed officials also saw a greater risk chance that their new projections were too optimistic ,rather than beig too pessimistic and leading to deepening problems in housing and credit markets and rising energy and commodity prices.

"The possibility that house prices could decline more steeply was perceived as a significant" potential problem, according to the Fed.Central bank officials are "especially" worried about a scenario under which "weaker economic activity could lead to a worsening of financial conditions and a reduced availability of credit, which in turn could dampen economic growth."

The central bank expects the economy to expand below its trend rate. That's a sharp drop from the Fed's projection.The forecast represents the consensus of Fed governors and regional bank presidents. It projects that unemployment in 2008 will range from 5.2% to 5.3%, up from its 4.8% to 4.9%. Consumer inflation is expected to hit 2.1% to 2.4% in 2008, compared with the October forecast of 1.8 to 2.1%. Core inflation, which excludes food and energy prices, is now put at 2.0% to 2.2%, high from the earlier 1.7% to 1.9% range.

The forecast includes the positive impact of a "stimulus" package of business and personal tax cuts. Some Fed officials said the stimulus package should provide a boost during the second half of this year.

Fed officials, who have cut a key interest rate to 3% from 5.25% said the rate cuts would help stabilize the economy over the longer term, with growth accelerating to a 2.5% to 3.0% range by 2010 and unemployment moderating to 4.9% to 5.1%. But Fed officials had widely different views of how fast the economy would rebound. Further, core inflation in 2010 — pegged at 1.7% to 1.9%, was "judged likely still to be a bit above levels" that some Fed officials saw as appropriate.

There are signs that the Fed's outlook may be too optimistic in some areas. The Labor Department said Wednesday that consumer inflation rose at an unexpectedly rapid clip in January. The consumer price index gained 0.4% during the month. Overall, inflation has been running at a 6.8% annual rate in the past three months, with core inflation running at a 3.1% annual rate.

Much of the increase in the January consumer inflation numbers was due to rising food and health care costs. The lower dollar and rising prices elsewhere in the world may also be boosting the price of imported goods. The situation doesn't appear likely to improve any time soon. Energy prices have spiked in recent days, with crude oil prices Tuesday closing above $100 a barrel for the first time ever.

Fed Chairman Ben Bernanke in congressional testimony said he expected the nation to skirt a recession. But that could be a distinction without much of a difference.

EFFECT OF GOVERNMENT SPENDING ON ECONOMIC GROWTH-

Advocates of bigger government argue that government programs provide valuable "public goods" such as education and infrastructure. They also claim that increases in government spending can increase economic growth by putting money into people's pockets.

Opposite view is of proponents of smaller governments. They explain that government is too big and that higher spending undermines economic growth by transferring additional resources from the productive sector of the economy to government, which uses them less efficiently. They also warn that an expanding public sector complicates efforts to implement pro-growth policies-such as fundamental tax reform and personal retirement accounts- because critics can use the existence of budget deficits as a reason to oppose policies that would strengthen the economy.

ON THE BASIS OF ARTICLES-

TAXING EEFECTS ON PEOPLE-

Paying taxes is surely everyone's least favorite government-related activity. But taxing citizens is one of the concurrent powers of government. Federal, state, and local levels all have the power to tax.

People expect state and local governments to provide services such as police protection, education, highway building and maintenance, welfare programs, and hospital and health care. Taxes are a major source of income to pay for these services and many others that hit close to home. For most people, their local and state tax money pays for very visible services that they generally take for granted, except when something goes wrong with garbage collection, traffic lights, or snow removal. People are most likely to get involved with local and state governments when these basic services go wrong.

The single biggest expenditure in all states is education, with the average state and the localities within it spending just less than one-quarter of its budget for public schools. Funding for education comes primarily from the local school district budget, but most state governments give a great deal of financial and administrative support to schools. Other big budget items for state and local governments are the following:

EFFECTS OF INFLATION INDIVIDUALS:-

Prices of various items all increase at different rates therefore some people are benefiting while others suffer. Those on fixed incomes suffer the most because the cost of things they are buying increases but their income stays the same.

This is where COLA or “Cost Of Living Allowance” comes in it and acts as an adjustment that is made to compensate for the increase in prices due to inflation.But even if costs are adjusted they are adjusted after the fact so that you have already been paying the higher prices for a year before your income is adjusted.

One side of inflation that most consumers appreciate is the fact that they can pay off their debts with “cheaper dollars”. So as you borrow the value of the money you borrowed goes down so it takes fewer hours of work to pay back the lender.

impact of UNEMPLOYMENT-When unemployment is high, people who have jobs may be more stressed and overworked than ever. Those that have lost jobs may be feeling depressed and anxious. Though recessions end, and unemployment rates will fluctuate, it takes more than high hopes to land on your feet after a stint of unemployment. Even those who don't sufferlayoffs in an office may find that their jobs (as well as their personal lives) have been negatively impacted. And for those who have lost their jobs, hopes for a timely retirement may be dramatically altered.

IMPACT OF TAX-A personal income tax applies to the income of an individual regardless of the allocation of this income between consumption and saving. It follows that an income tax is less burdensome on consumption than an equally yielding consumption or expenditure tax which is distributed in the same proportions by income classes. Where the income tax is paid by the large mass of people, much of the tax yield comes from income classes where there is little room in family budgets for reducing consumption in response to tax incentives. Under these circumstances the differential effect of the two types of taxes on total consumption and saving is likely to be relatively small.

Expenditure taxation, as felt can discourage lavish living by people with large amounts of property and thus increase saving and risk taking without resorting to regressive taxes. Despite its advantages, the expenditure tax has not been widely used. Rates in excess of 100 per cent would be required to raise significant amounts of revenue from high-income taxpayers. Moreover, the expenditure tax is more difficult to administer than the income tax and also raises much more serious problems of compliance on part of people.

SEE ALSO Inflation; Involuntary Unemployment; Microeconomics; Natural Rate of Unemploment in macroeconomics.

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